Equifax: Auto Loan Records Being Broken

The New York Times did an in-depth piece on subprime auto lending which led to many other media outlets including DrivingSales News to report on this important subject. While the speculation surrounding high-risk auto loans will not stop anytime soon, Equifax has released data about automotive lending that indicates an upward trend.

Totals for both new credit and auto loan originations are at all-time highs. Amy Crews Cutts, Senior Vice President and Chief Economist at Equifax offered some insight into these emerging trends. Cutts explained, “The abundance of high-quality vehicles for sale, the attractive financing options available, and the ever-increasing age of cars on the road today have created an environment that makes it easy for consumers to say ‘yes’ when it comes to purchasing a new or used car.”

The total balance of auto loans as of August of this year is $924.2 billion, which is an all-time high, and an increase of nearly 11% from one year ago. That figure is in addition to the total number of auto loans nationwide, which is $65 million, another all-time high. Clearly, Americans are borrowing money to buy cars at an increasing rate. However, why is that happening now? Cutts referenced the abundance of great options, however what are the other reasons for this trend?

One answer could be the ever-growing subprime market. Equifax data further pushes the notion that subprime loans are on the rise. The total balance of newly originated subprime auto loans is $70.8 million, which is the highest that it’s been since 2006. That figure represents nearly 28% of all new auto loans. Borrowers with credit scores below 680 increased the size of their loan by 3% compared to one year ago, whereas those with strong credit rating above 760 showed little to no change in the size of their loan package.

What dealers can make of this data is that there simply is an abundance of borrowing going on right now. More consumers are buying cars and are more than willing to finance them along the way. What is your store doing to make that buying process seem as easy as possible for your customers? What can dealers make of the subprime data? Is the fear of a subprime bubble justified of just a knee-jerk reaction of the mortgage meltdown?